By CA Anupam Petkar

Foreign Direct Investment – Primary Look

The Foreign Direct Investment means “cross border investment madeby a resident in one economy in an enterprise in another economy,with the objective of establishing a lasting interest in the investeeeconomy.economy.

FDI is also described as “investment into the business of a country bya company in another country”. Mostly the investment is intoproduction by either buying a company in the target country or byexpanding operations of an existing business in that country”. Suchinvestments can take place for many reasons, including to takeadvantage of cheaper wages, special investment privileges (e.g. taxexemptions) offered by the country.

FDI – Benefits

Improvement in Foreign Exchange Position of Country

Additional capital formation by bringing in fresh capital

Introduction of new technologies, management skills, intellectualproperty

Improvement in efficiency in local market because of increasedcompetition

Helps in increasing Exports

FDI - Historical Overview – India

Pre 1991 Hardly any foreign equity inflows, reliance on foreign debt

1991- 92 1991- 92 Balance of payments crisis lead to IMF induced liberalization

1996-97 Setting up FIPB - facilitation of expeditious approvals throughnodal agency

1999FEMA- fundamental shift in philosophy and liberalization

Scope of FDI in India

Sectors which has benefited from FDI Telecommunication Insurance Financial Sector Pharmaceuticals Software and Information Technology Software and Information Technology

Major economic sectors where India can attract Investment – Auto parts Chemicals Jewellery Pharmacy Apparels

Recent Developments – FDI Cap revised

FDI cap in telecom raised to 100 percent from 74 percent; up to 49percent through automatic route and beyond via FIPB.

No change in 49 percent FDI limit in civil aviation.

FDI cap in defence production to stay at 26 percent, higher investmentmay be considered in state-of-the-art technology production by CabinetCommittee on Security (CCS).

100 percent FDI allowed in single brand retail; 49 percent through 100 percent FDI allowed in single brand retail; 49 percent throughautomatic, 49-100 percent through FIPB.

FDI limit in insurance sector raised to 49 percent from present 26percent, subject to Parliament approval.

FDI up to 49 percent in petroleum refining allowed under automaticroute, from earlier approval route.

In power exchanges 49 percent FDI allowed through automatic route,from earlier PIPB route.

Raised FDI in asset reconstruction companies to 100 percent from 74 percent; of this up to 49 percent will be under automatic route.

FDI limit increased in credit information companies to 74 percentfrom 49 percent.

FDI up to 49 percent in stock exchanges, depositories allowed under

Recent Developments – FDI Cap revised... cont

FDI up to 49 percent in stock exchanges, depositories allowed underautomatic route.

FDI up to 100 percent through automatic route allowed in courierservices.

FDI in tea plantation up to 49 percent through automatic route; 49-100 percent through FIPB route.

No decision taken on FDI cap in airports, media, brown field

pharmacy and multi-brand retail.

Need FDI in Manufacturing to push Jobs & Growth

Unprecedented level of interest from International Investors

Primary Sector – Agriculture – can provide jobs not growth

Tertiary Sector – IT – can provide growth but not enough jobs

Manufacturing Sector – if we want to provide jobs as well as growth

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